Equity LifeStyle Properties, Inc. — Q1 2023 Form 10-Q
Reporting period: Quarter ended March 31, 2023; unaudited. ELS is a self-managed REIT operating manufactured-home and RV communities, marinas, and related home sales and rental businesses. At quarter-end, it owned or had interests in 450 properties with approximately 171,477 sites.
Financial performance
| Metric | Q1 2023 | Q1 2022 | Change |
|---|---|---|---|
| Total revenue | $370.0 million | $360.2 million | Up 2.7% |
| Net income | $86.5 million | $87.1 million | Down $0.6 million |
| Net income available to common stockholders | $82.4 million; $0.44 per diluted share | $82.9 million; $0.45 per diluted share | Down $0.5 million |
| FFO available to common stock and OP unitholders | $144.1 million; $0.74 per diluted share | $140.9 million; $0.72 per diluted share | Up $3.2 million |
| Normalized FFO available to common stock and OP unitholders | $144.3 million; $0.74 per diluted share | $141.4 million; $0.72 per diluted share | Up $2.9 million |
| Net cash from operating activities | $194.5 million | $177.3 million | Up $17.1 million |
| Net cash used in investing activities | $101.9 million | $105.2 million | Use decreased $3.3 million |
| Net cash used in financing activities | $84.2 million | $157.4 million | Use decreased $73.2 million |
Rental income was $296.5 million, up 4.0%. Property Operations segment income rose 3.7% to $176.7 million. Core Portfolio property operating revenue, excluding deferrals, increased 6.4%, while related operating expenses excluding deferrals and property management rose 7.4%; income on that basis increased 5.7%. The filing does not provide a single consolidated operating-margin figure.
Interest and related amortization expense increased 18.7% to $32.6 million, which management attributed primarily to higher interest rates. Capital improvements were $96.5 million, versus $83.6 million in Q1 2022.
Balance sheet, debt and liquidity
- Total assets were $5.52 billion and total liabilities were $4.01 billion at March 31, 2023. Cash and restricted cash totaled $30.7 million.
- Mortgage notes payable, net, were $2.68 billion; term loans, net, were $497.0 million; and the unsecured line of credit had $212.0 million drawn. The line had $288.0 million of remaining capacity under its $500 million commitment.
- Mortgage debt had a weighted-average interest rate of approximately 3.7% and maturities ranging from 2023 to 2041. The credit agreement and term loans use SOFR; ELS reported no remaining LIBOR-based borrowings and compliance in all material respects with debt covenants.
- Operating cash flow exceeded investing outflow by approximately $92.5 million. ELS said it expects to meet the next 12 months’ liquidity needs through cash, operating cash flow and the line of credit. The $500 million ATM equity program remained fully available.
Material changes and unusual items
- Manufactured-home base rental income in the Core Portfolio increased 6.5%, primarily from 6.6% rate growth; average occupancy was 94.9%, compared with 95.0% a year earlier.
- Core RV and marina base rental income increased 5.5%, with annual and seasonal revenue growth partly offset by a 14.9% decline in transient revenue. Management cited fewer transient sites and California flooding disruptions.
- New home sales fell 32.6% to 176 units. Home Sales and Rentals segment revenue declined to $24.0 million from $31.1 million, while segment income increased to $3.9 million from $3.3 million.
- ELS recorded a $2.6 million impairment related to flooding at California properties. Hurricane Ian cleanup costs of approximately $8.5 million were offset by an equal expected insurance recovery accrual; $3.6 million of business-interruption income was also recognized.
- ELS acquired Red Oak Shores Campground, a 223-site New Jersey RV community, for $9.5 million, funded through the line of credit. It sold its 33% interest in a utility plant serving Voyager RV Resort.
- The quarterly distribution declared for Q1 2023 was $0.4475 per share, up from $0.4100 for each 2022 quarter.
Outlook, risks and contingencies
No specific full-year earnings or FFO guidance is provided in the filing. Management expressed expectations for continued demand for manufactured-home and RV communities, citing demographic trends and restricted development in target markets, and said it continues to pursue acquisitions. It cautioned that interim results are seasonal and may not indicate full-year results; transient revenue is particularly exposed to weather and travel preferences.
Key disclosed risks include inflation and interest rates, refinancing and financing availability, occupancy and rental-rate performance, home-sale demand and financing constraints, acquisition integration, and the timing, costs, property impacts and insurance recoveries related to Hurricane Ian. ELS also warned that some losses may be uninsured or exceed policy limits. Its renewed MH/RV property coverage has a $125 million per-occurrence limit, including approximately $50 million for named windstorms, subject to sublimits and deductibles; California earthquake coverage has a $25 million aggregate limit. Ordinary-course legal and regulatory proceedings were not considered by management to represent a material liability. ELS reported no off-balance-sheet arrangements.
Important facts for investors to verify
- Whether rental-rate growth can continue to offset higher property operating costs, which rose faster than Core Portfolio operating revenue in the quarter.
- Whether transient RV and marina revenue recovers, and the ongoing effects and insurance proceeds associated with California flooding and Hurricane Ian.
- Interest-rate exposure, debt maturities and refinancing costs, including the effect of SOFR-based borrowing and the company’s hedges.
- The sustainability of home-sales volumes and rental-home occupancy, given the decline in new home sales and occupied rental units.
- Capital-improvement needs, dividend coverage and the potential dilution if the available ATM equity program is used.